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China Needs Old Boys With M.B.A.’s

One evening in Beijing, I wandered into a local bookstore. I couldn’t read a thing, of course, but I had been told that Chinese urbanites are voracious readers, and that I could get a feel for that in any decent bookstore. The place was enormous; its five floors of wall-to-wall books made your typical suburban Barnes & Noble look puny by comparison. Shoppers sat on the floor, reading.

But here’s what really struck me. You know how, when you walk into a Barnes & Noble, the first thing you see are the hot new hardcover fiction titles? Not in this place. Instead, that first, precious point of sale was reserved for, of all things, management books.

On shelf after shelf, I could see copies of Jim Collins’s “Good to Great,” Jack Welch’s “Straight From the Gut,” Tom Peters’s “Re-Imagine!” and just about everything the late Peter Drucker ever wrote. There was no management topic, no matter how arcane — the science of H.R. anyone? — that didn’t have its own section.

There’s a good reason for this. In the West — not to mention Japan and South Korea — management skills are a given. Graduate schools of management churn out M.B.A.’s, while instilling the basic processes and systems that virtually all multinational companies rely on. People who rise to the top of companies are the ones who have mastered the art of management. But there are also many first-rate managers who populate the middle ranks of companies. They are the lifeblood of most big companies.

Not so in China. “The shortage of managerial talent is huge,” said Zheng Yu-sheng, the associate dean at the Cheung Kong Graduate School of Business. In the course of my two weeks in China, I heard this refrain constantly — and not just from business school professors. “We are constantly looking for chief financial officers who can speak Mandarin,” said Thomas Tsao of Gobi Partners, a Shanghai-based venture capitalist. “There just aren’t very many people here who have the range of skills you need in that position.”

“It is very hard to find a chief operating officer,” said Mathew McDougall, an Australian who started an Internet ad company called SinoTech in Beijing. He continued: “The people who make good C.O.O.’s are usually entrepreneurial enough that they’ll go off and start their own business instead. Either that or they’ll get picked off by the multinational companies.”

Xiang Bing, dean of the Cheung Kong Graduate School of Business, said: “We Chinese are so willing to work hard for money. We are intelligent. We have the drive and the passion. But we put too much attention on technology and not enough on institution-building. And our soft skills are a real weakness.”

And then there is Lei Yi, the president and chief executive of Caxa Technology, a Beijing software company that caters to big manufacturers. I visited Mr. Yi one afternoon to learn a little about his company, but it wasn’t long before he was talking about management issues.

A former aeronautics professor at Beijing University, Mr. Yi started his company five years ago. His central notion was that large manufacturers in China badly needed design and process software — and he was right. A year ago, he had a little over 400 employees; today, he’s up to 800. He’ll surely have over 1,000 employees by the end of 2008. Caxa, in other words, is growing like crazy. But then, so is the need for its services. “Right now,” said Mr. Yi, through a translator, “the pace of our development cannot meet the pace of the industry’s development.”

It is obvious that Caxa has a huge opportunity in front of it, but to take full advantage, the company needs to get much bigger. Which means Mr. Yi needs a real management system in place. He also needs a first-class human resources operation; most Chinese entrepreneurs hire friends and family because they don’t trust people they don’t know.

Right now, Mr. Yi told me, the company is in the process of raising capital, some of which he’ll use to “bring in a consultancy or managers from the outside.”

Then he sighed. “I need to become a professional manager,” he said.

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Five years ago, in an effort to help China develop corporate managers, Mr. Xiang founded the Cheung Kong Graduate School of Business, with funding from the Li Ka-shing Foundation. (Mr. Li, a Hong Kong developer and businessman, is one of the wealthiest men in the world.) Mr. Xiang , who got his Ph.D. from the University of Alberta, was then teaching at Beijing University’s business school, where he started the school’s executive M.B.A. program. Like the Chinese entrepreneurs he teaches, Mr. Xiang saw his opportunity, and went for it.

Like any business school, Cheung Kong has an M.B.A. program. But its real calling card is its executive M.B.A. program, a four-day-a-month, 19-month program aimed primarily at Chinese entrepreneurs who have come to the stark realization that if they don’t get help fast, they are going to lose control of their rapidlygrowing businesses. Its faculty comes from places like Wharton and Harvard Business School. At $68,500, it is by far the most expensive such program in China. Among its best-known alumni are Jack Ma, who founded Alibaba.com, and Jason Jiang of Focus Media.

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Rapid growth, though, is only one of the issues these entrepreneurs are facing. Every bit as difficult are ingrained mind-sets and attitudes that can make it difficult for Chinese executives to adapt professional management techniques.

Chiang Jeongwen, a marketing professor at the school, told me that many Chinese entrepreneurs — even those who have graduated from the executive M.B.A. program — don’t want to hire M.B.A.’s because they bridle at having to pay professional management salaries. Another problem, he said, was that many Chinese executives believe that “because it is a Chinese business, professional managers won’t fit in the system.”

Indeed, that is really the nub of the problem. When dealing with each other, the Chinese, quite simply, do business differently than Western companies do business. For one thing, there is a lot of petty corruption that is an ingrained part of business, especially among the state-run companies. Purchasing managers favor one vendor over another because they get a kickback. A sales rep buys customer loyalty with under-the-table payments. And so on.

People also tend to put their own interests over the interests of their company — not a huge surprise, given that everyone worked for the state just a generation ago. Middle managers tend not to take much initiative. “Somebody said to me the other day, ‘We are paid to obey,’ ” said one American manager at a Chinese company. (He requested anonymity because the interview was not authorized by the company.) For Chinese companies to play on the global stage, these are all habits that need to diminish.

But there are also things that can seem straightforward to a Westerner that are anything but in China. “Take the word ‘accountability,’ ” said Liu Chijin, the chairman of Pan Pacific Management Institution, a management consulting firm he founded in 1999. “It is a natural concept in the West. Here, people know what it means, but it is not in their blood. If you give them an assignment, tomorrow they are likely to tell you that something else came up.”

Finally, there is the gnarliest issue of all: the importance placed on the deep, intertwining set of relationships known as guanxi. Unlike the West, you don’t just have a business relationship in China; you have a relationship that interchangeably mixes the personal with the professional.

“Most Americans would say that we have it as well with the old boys network,” said Mr. Chiang, the marketing professor. “But Chinese intertwine business and personal affairs much more deeply. They do things for their partners even if they are personal affairs. And it is very difficult to disentangle what is institution to institution and what is person to person.” On the one hand, this leads to a sense of deep mutual loyalty. On the other hand, it is at the heart of the petty corruption that is so prevalent.

One question I wondered about was whether Chinese companies would inevitably have to become Westernized in order to play on the global stage. Most of the management experts felt that the process and systems that had been developed over decades by the likes of General Electric and Toyota had spread because they worked — and the Chinese would have to adapt to them. “There is no pure American way or German way to do business,” Mr. Liu said. “When you cut to the bone, you are still dealing with growth, profitability, return on assets.”

I also wondered if that was a good or a bad thing. Most entrepreneurs I spoke with talked about the need to retain at least some aspects of a Chinese business culture. It allowed employees to feel rooted in the company, and gave customers a higher level of comfort. Somewhat to my surprise, Mr. McDougall, the Aussie who founded SinoTech, was one of the fiercest advocates of this approach. “We only speak Mandarin in the office,” he said. “We want to be viewed as a Chinese company. We deal with investors in the American way, but we deal with customers in the Chinese way. In the U.S., you talk to customers about your unique selling proposition. In China, you talk to them about schools, your family, your friends in common, and what you can do for them.”

As the interview was coming to a close, I asked him about SinoTech’s growth rate. “We were six people six months ago,” Mr. McDougall replied. “We are 120 people now. We’ll be 500 people by the end of the year.”

He laughed and gave me a helpless little shrug. “It’s China,” he said.